Development Finance - Five Things to Consider Before Applying

Posted by Mesa Financial on 22nd July 2022 -

Development finance and leverage is a fundamental part of the process when delivering new homes in the UK as well as internationally.

Here are five important things to consider before going ahead with your development finance application.

1.     Headline rates: Please do not be completely led by the headline rate. Ultimately, it’s about the total cost of borrowing. The numbers don’t lie but they can be misleading if you don’t delve into the detail. Rates across the board are increasing due to soaring inflation so understanding what your headline is tracking is fundamental. That’s where specialist advice can help when you are looking into development finance options.

2.     Leverage: We have many scenarios where the finance is relatively cheap. However, the leverage is usually capped at a reduced level. This leads on to a fundamental question, do you need to make your equity work harder for you? Lenders are already reducing LTV and LTC ratios.

3.     Expertise: Is the lender predominantly a bridging lender that have recently moved into development finance? As development deals and construction are complex, it’s key that the right partnership is being formed. You should find an expert who has a track record of finding the right development finance structure. 

4.     Timings: Does your lender deliver the funds in the required timescales? People need to be paid so it’s paramount that this is being delivered as soon as possible. That is another reason why an experienced specialist is going to add value. They have the required knowledge of the process and well established relationships with lenders and banks to get the solution across the line quickly.

5.     Options: Have you considered all of your potential options? The development finance market is fairly vast. It’s likely that there are multiple options out there, maybe even more than initially anticipated. Hence the importance of working with a whole of market brokerage that advise as opposed to just executing. If you are restricted to a smaller panel of lenders you may not get the best development finance deal.